Looked at from any number of perspectives,it is clear that America’s system of K–12 school-ing is leaving many children behind. Twenty-five percent of U.S. students haven’t graduatedfrom high school by age 18, and the nation’shigh-school seniors score below teenagers inalmost every other developed country on math-ematics and science tests.
Since the 1970s, perpupil expenditures have doubled, class sizeshave shrunk, and teachers’ salaries have grown.Despite those spending infusions and count-less other reforms, student achievement hasstagnated and even declined.
Americans are increasingly dissatisfied withthe quality of public schools, and most thinkprivate schools offer a better education than dopublic schools.
Concomitant with those senti-ments is a growing belief that parents shouldhave more control over the selection of theirchildren’s schools. A recent CNN/USA Today/ Gallup poll found that 54 percent of Americanssupport policies that provide parents with agreater choice of schools.
There is good reason to believe parentsshould have more control over their children’seducation: more than a dozen studies havefound that school choice programs increaseparental involvement and have a positiveimpact on student achievement.
And morethan half of parents say that, if cost were notan issue, they would prefer to send their chil-dren to a private or parochial school.
Policymakers attempting to satisfyparental demand for choice are increasinglyconsidering using education tax credits.Among other benefits, education tax creditsreduce the cost associated with choosingindependent and parochial schools andthereby enlarge the pool of schools availableto parents.
Education tax credits or deduc-tions exist in 4 states, and at least 7 state leg-islatures considered adopting education taxcredits in 2001.
For the purpose of this analysis, weassume that every dollar spent on the taxcredit results in a direct revenue loss to thefederal government, for a total cost of $9.2billion.
At the state level, however, use of thetax credit results in revenue savings.
Byreducing the cost of private schooling, theeducation tax credit would encourage someparents to transfer their children from publicto private schools. As students transfer to pri-vate schools, the government has fewerpupils to educate and can reduce educationexpenditures accordingly.The parental choice component of thecredit could help approximately 330,000 newstudents attend a school of their parents’choice, in addition to making private school-ing more affordable for the families of themore than 5 million students currentlyenrolled in private schools.
We project anestimated savings across the states of $2 bil-lion, with significant variation by state.Savings to taxpayers in states such asCalifornia would be an estimated $250 mil-lion; in states like New Mexico, an estimated$8 million. We also find that the credit’sscholarship component could raise enoughmoney to give nearly 3 million studentsscholarships worth $2,000 apiece. If 1 millionof those scholarships assisted low-incomechildren who are currently enrolled in privateschools, there would still be enough revenueto help nearly 2 million additional children.Under this scenario, as nearly 2 million newstudents moved from public schools to pri-vate schools, taxpayers would reap $12 bil-lion in savings. All together, the parentalchoice and scholarship credits would enableroughly 2.3 million new students to attend aschool of their parents’ choice at a savings totaxpayers of $14 billion.
The proposal under consideration is a$500, nonrefundable education creditagainst the federal income tax. This credithas two components. The first piece is aparental choice credit, under which any par-ent could receive a dollar-for-dollar reductionin income-tax liability of up to $500 per child
By effectivelyreducing the costof private school-ing, the creditwould encouragesome parents totransfer theirchildren frompublic to privateschools.